Tax debts posed to spike to record P5.4bn
A report on the effects of COVID -19 on taxes prepared by Aupacron tax specialists states that it is axiomatic that COVID-19 will continue to shed a significant chunk of businesses’ revenues, negatively impacting their cashflows.
“The moment a business’ cashflows are impacted, their ability to pay creditors dwindles, tax authorities included. As a result, the economic drought brought about by the pandemic will certainly result in an astronomical jump in tax debts way above the annual average of 22% recorded in past years,” reads the report.
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The report peeks into the 2016-17 BURS annual report, “taxpayers owed P2.2bn at the beginning of that year and by 31 March 2017, the bill shot up by 22% to P2.7bn. By the end of the 2017/2018 year, the debt put on another 22%, climbing to P3.3bn. We anticipate that the tax debt figure will climb by another 22% for the 2019-2020 financial year.”
And concludes thus, “However, considering the anticipated harsh economic conditions that are synonymous with COVID-19, the spike in tax debts for the 2020-2021 year could stand at a staggering P5.4bn, putting on a much higher 35% annual increase.”
According to Aupacron tax specialists, this increase is likely as taxpayers who may have intended to reduce their present tax debts current year may be constrained by financial challenges, resulting in more interest charges. “Further, many taxpayers who had all along managed to bear their tax bills may be drawn aback by the economic contraction of 13.1%, which will obviously push tax debts up.”
Pressure to increase tax mounts
According to the report the sufficient government revenues expected before COVID-19 allowed the country to defer tax increases. However, the authorities had previously hinted on the possibilities of increasing the taxes.
During the NDP 11 review towards the end of 2019, Minister, Dr Thapelo Matsheka shared that Botswana has one of the lowest VAT rates in the world and this may not be sustainable.’ The Minister also alluded to the fact that, ‘there is scope to increase taxes,’ which is an indication that the tax rates are, per the SADC comparison above, quite low.
“We do not intend to sound false alarms by implying that tax increases are imminent but the revenue declines may make them a viable option. In the event that the authorities decide to increase the tax rates, we believe that the following would be the likely increases,” say the tasx specialists.
Aupacron specialists anticipate that VAT may be increase from 12% to about 14% or 15%. As for Corporate tax they project an increase from the current 22% to 25% while PAYE could attract an increase from 25% at the highest bracket to 27.5% or 30%.
“We are of the view that a VAT hike is most probable as it is easy to increase as witnessed when the rate was increased from 10% to 12% effective 1 April 2010. South Africa also recently increased the VAT rate from 14% to 15%.
Increasing VAT, whilst apparently an alternative option, results in sudden increases in the prices of all goods and services subject to the tax, hurting low income earners and eroding the purchasing power of the general public. Introducing a Financial Transactions Tax (FTT) may be a better option,” they observed in their report.
Alternative to VAT increase
The tax collection agency was posed to collect VAT of P 8.55bn in the 2020-2021 financial year, before the pandemic hit the country. This means that if the tax authorities were to increase the VAT rate by say 2%, the additional tax revenue from that increase would average P 170m per annum.
“When the VAT rate was last increased on 1 April 2010 from 10% to 12% it caused caused a jump in inflation as naturally, increases in VAT rates translate to an automatic increase in the prices of almost all goods and services, including food, medical services, real estate, among other things.
In 2019, South Africa increased the VAT rate from 14% to 15% and there was an immediate outcry from welfare-biased NGOs and low-income earners on the negative effects of the increase.”
According to the report, inflation, which is synonymous with VAT increases, hits the economically disadvantaged, especially the unemployed and low-income earners.
“Technically, it erodes the purchasing power of most consumers as they won’t afford the same basket of goods and services that they could purchase before the VAT increase. Further, it is known that employers do not always increase salaries in response to tax increases. This then leads us to suggest other non-inflationary ways of raising tax revenue,” reads the report.
Aupacron tax specialists suggest as an alternative to a VAT increase, the tax authorities could consider widening the tax base through non-inflationary means such as introducing a new tax commonly referred to as Financial Transactions Tax (FTT). An FTT is a transactional tax that is charged whenever financial transactions are conducted.
Effects of the pandemic
Aupacron report says in the 2020-2021 year, domestic and SACU revenue collections were expected to be P44.4bn before COVID-19 spread to Botswana.
“As the pandemic hit the country in the first quarter of 2020, the tax authorities reduced the revenue targets, mainly due to anticipated economic slowdown triggered by among others, lockdowns, closure of borders, travel restrictions and cancellation of social and business events.
On 24 April 2020, the Minister hinted that the economy was expected to contract by 13.1%, adding that VAT collections would reduce from the budgeted P8.55bn to P7.6bn.”
The report further indicates that when corporates do not perform well, they are likely to pay less salaries to employees and that also cuts the share of PAYE that tax authorities can collect.
“Whilst retrenchments may not be as high as previously anticipated before their suspension through Statutory Instrument 63 of 2020, financially constrained employers are likely to negotiate lower salaries with employees or make staff redundant (without necessarily retrenching them). This will in turn reduce the amount of PAYE that tax authorities can collect.”
On the other hand, SACU revenues are directly impacted when borders are closed and when economies are locked down. The uncertainty in future economic prospects brought about by the pandemic is also likely to put projects on hold, which reduces imports and consequently, SACU revenues.
countries would decline by an average of 5.6% in 2020, per its April 2020 report, which directly feeds into a reduction in tax collections.
Given the above-mentioned factors and in particular, the expected contraction of the economy by 13.1% coupled with the shrinkage of the SACU member states, the domestic economy as well as that of the SACU members will shrink. Another factor which may result in a reduction of domestic taxes as well as SACU revenues is the suspension of investments, which could have been embarked on had COVID-19 not ravaged the economies.
The exact impact of delayed projects may further impact taxes. Further, when an economy contracts, some taxpayers ability to comply with taxes will be hampered by financial constraints, further worsening the tax collection capacity. It is also important to note that a contraction in an economy will have further negative ripple effects such as company closures and bankruptcies, which further slow down economic activity.
On the basis of the above, we anticipate that the slowdown in the Botswana economy of 13.1% and the 5.2% SACU economies contraction will shed off around 14.5% of previously anticipated domestic and SACU revenues of P44.4bn. The overall reduction in taxes would be around P 37.96bn
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Business
LLR transforms from Company to Group reporting
Botswana Stock Exchange listed diversified real estate company, Letlole La Rona Limited (“LLR” or “the Company” or “the Group”), posted its first set of group financial statements which comprise the Company and Group consolidated accounts, which show strong financial performance for the six months ended 31 December 2023, with improvements across all key metrics.
The Company commenced the financial year with the appointment of a Deputy Chairperson, Mr Mooketsi Maphane, in order to bolster its governance and enhance leadership continuity through the development of a Board and Executive Management Succession Plan.
At operational level, LLR increased its shareholding in Railpark Mall from 32.79% to 57.79% and proudly took over the management of this prime asset.
The CEO of LLR, Ms Kamogelo Mowaneng commented “During the period under review, our portfolio continued to perform strongly, with improvements across all key metrics as a result of our ongoing focus on portfolio growth and optimisation.
“We are pleased to report a successful first half of the 2024 financial year, where we managed to not only grow the portfolio through strategic acquisitions and value accretive refurbishments but also recycled capital through the disposal of Moedi House as well as the ongoing sale of section titles at Red Square Apartments. The acquisition of an additional 25% stake in JTTM Properties significantly uplifted the value of our investment portfolio to P2.0 billion at a Group level. Our investment portfolio was further differentiated by the quality of our tenant base, as demonstrated by above market occupancy levels of 99.15% and strong collections of above 100% for the period”.
The growth in contractual revenue of 9% from the prior year’s P48.0 million to the current year P52.2 million, increased income from Railpark Mall, coupled with high collection rates, has enabled the company to declare a distribution of 9.11 thebe per linked unit, which is in line with the prior year.
In line with its strategic pillars of ‘Streamlined and Expanded Botswana Portfolio’ as well as ‘Quality African Assets’, the Group continuously monitors the performance of its investments to ensure that they meet the targeted returns.
“The Group continues to explore yield accretive opportunities for balance sheet growth and funding options that can be deployed to finance that growth” further commented the CEO of LLR Ms Kamogelo Mowaneng.
Ms Mowaneng further thanked the Group’s stakeholders for their continued support and stated that they look forward to unlocking further value in the Group.
Business
Botswana’s Electricity Generation Dips 26.4%
The Botswana Power Corporation (BPC) has reported a significant decrease in electricity generation for the fourth quarter of 2023, with output plummeting by 26.4%. This decline is primarily attributed to operational difficulties at the Morupule B power plant, as per the latest Botswana Index of Electricity Generation (IEG) released recently.
Local electricity production saw a drastic reduction, falling from 889,535 MWH in the third quarter of 2023 to 654,312 MWH in the period under review. This substantial decrease is largely due to the operational challenges at the Morupule B power plant. Consequently, the need for imported electricity surged by 35.6% (136,243 MWH) from 382,426 MWH in the third quarter to 518,669 MWH in the fourth quarter. This increase was necessitated by the need to compensate for the shortfall in locally generated electricity.
Zambia Electricity Supply Corporation Limited (ZESCO) was the principal supplier of imported electricity, accounting for 43.1% of total electricity imports during the fourth quarter of 2023. Eskom followed with 21.8%, while the remaining 12.1, 10.3, 8.6, and 4.2% were sourced from Electricidade de Mozambique (EDM), Southern African Power Pool (SAPP), Nampower, and Cross-border electricity markets, respectively. Cross-border electricity markets involve the supply of electricity to towns and villages along the border from neighboring countries such as Namibia and Zambia.
Distributed electricity exhibited a decrease of 7.8% (98,980 MWH), dropping from 1,271,961 MWH in the third quarter of 2023 to 1,172,981 MWH in the review quarter.
Electricity generated locally contributed 55.8% to the electricity distributed during the fourth quarter of 2023, a decrease from the 74.5% contribution in the same quarter of the previous year. This signifies a decrease of 18.7 percentage points. The quarter-on-quarter comparison shows that the contribution of locally generated electricity to the distributed electricity fell by 14.2 percentage points, from 69.9% in the third quarter of 2023 to 55.8% in the fourth quarter. The Morupule A and B power stations accounted for 90.4% of the electricity generated during the fourth quarter of 2023, while Matshelagabedi and Orapa emergency power plants contributed the remaining 5.9 and 3.7% respectively.
The year-on-year analysis reveals some improvement in local electricity generation. The year-on-year perspective shows that the amount of distributed electricity increased by 8.2% (88,781 MWH), from 1,084,200 MWH in the fourth quarter of 2022 to 1,172,981 MWH in the current quarter. The trend of the Index of Electricity Generation from the first quarter of 2013 to the fourth quarter of 2023 indicates an improvement in local electricity generation, despite fluctuations.
The year-on-year analysis also reveals a downward trend in the physical volume of imported electricity. The trend in the physical volume of imported electricity from the first quarter of 2013 to the fourth quarter of 2023 shows a downward trend, indicating the country’s continued effort to generate adequate electricity to meet domestic demand, has led to the decreased reliance on electricity imports.
In response to the need to increase local generation and reduce power imports, the government has initiated a new National Energy Policy. This policy is aimed at guiding the management and development of Botswana’s energy sector and encouraging investment in new and renewable energy. In the policy document, Minister of Mineral Resources, Green Technology and Energy Security Lefoko Moagi stated that the policy aims to transform Botswana from being a net energy importer to a self-sufficient nation with surplus energy for export into the region. Moagi expressed confidence that Botswana has the potential to achieve self-sufficiency in electric power supply, given the country’s readily available energy resources such as coal and renewable sources.
Business
MMG acquires Khoemacau in a transaction valued at P23Bn
MMG Limited, the Hong Kong-based mining company specializing in base metals, has successfully concluded the acquisition of Khoemacau Copper Mine, a state-of-the-art, world-class copper asset nestled in the northwest of Botswana.
On Monday, MMG announced that the acquisition of Khoemacau Mine in Botswana was finalized on 22nd March 2024. “This acquisition enriches the company’s portfolio with a top-tier, transformative growth project and signifies a monumental milestone in the Company’s journey,” MMG communicated in an official statement published on the Hong Kong Stock Exchange.
Upon completion of the acquisition, MMG remitted to the Sellers an Aggregate Consideration of approximately US$1,734,657,000 (over P23 billion), a sum subject to potential adjustments post-Completion.
In addition to the Aggregate Consideration, MMG, in accordance with the Agreement, advanced an aggregate amount of approximately US$348,580,000 (over P4.5 billion) as the Aggregate Debt Settlement Amount, to settle certain debt balances of the Target Group (Cuprous Capital/Khoemacau).
On November 21, 2023, Khoemacau announced that the shareholders of its parent company [Cuprous Capital] had agreed to sell 100% of their interests to MMG Limited.
MMG is a global resources company that mines, explores, and develops copper and other base metals projects on four continents. The company is headquartered in Melbourne, Australia, and has a significant shareholder, China Minmetals Corporation, which is China’s largest metals and minerals group owned by the Government of the People’s Republic of China.
On December 22, 2023, Khoemacau Copper Mining (Pty) Ltd received the approval from the Minister of Minerals and Energy of Botswana regarding the transfer of a controlling interest in the Project Licenses and Prospecting Licenses associated with the Khoemacau Copper Mine, a result of the Acquisition.
The Botswana Competition & Consumer Authority (CCA) on January 29, 2024, notified the market that it had given its approval for the takeover of Khoemacau Copper Mining by MMG Limited.
On January 29, 2024, the CCA issued a merger decision to the market, stating that after conducting all necessary assessments, it was ready to proceed.
The Competition Authority affirmed that the structure of the relevant market would not significantly change upon implementation of the proposed merger as the proposed transaction is not likely to result in a substantial lessening of competition, nor endanger the continuity of service in the market of mining of copper and silver ores and the production, and sale or supply of copper concentrate in Botswana.
Furthermore, the CCA stated that the proposed merger would not have any negative impact on public interest matters in Botswana as per the provisions of section 52(2) of the Competition Act 2018.
Earlier this month, Minister of Minerals & Energy, Lefoko Maxwell Moagi, informed parliament that his Ministry was endorsing the Khoemacau acquisition by MMG Limited. He noted that not only was the company acquiring the existing operation but also committing to an expansion program that would cost over $700 million to double production, create more jobs for Batswana, and increase taxes and royalties paid to the Government.